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Forced closure halts Kuwaiti market slide

November 14, 2008|Raed Rafei and Borzou Daragahi | Rafei is a special correspondent. Daragahi is a Times staff writer.

BEIRUT — Investors in Kuwait found a solution Thursday to tumbling share prices: Get a court to shut down the stock market.

A judge in the oil-rich Persian Gulf kingdom, acting on a lawsuit brought by individual investors, ordered the country's stock market closed to protect small investors from further declines in their portfolios.

Stock markets in the Middle East have tumbled along with others around the globe as oil prices have plunged and the financial contagion sparked by the U.S. mortgage crisis has continued to spread worldwide. The main Kuwaiti stock index is down 44% since June.

On Thursday, bankers from around the Arab world convened in Lebanon to discuss the crisis and the Kuwaiti government announced the creation of a multibillion-dollar fund to bail out ailing financial institutions.

Although traders at the Kuwait Stock Exchange cheered and howled with delight after learning that the market would be closed after less than an hour of trading, the court order was strongly criticized in other quarters.

"It is like fighting mosquitoes with a machine gun," said Haitham Abo Shady, managing director of Dubai Financial Brokerage, which is based in the United Arab Emirates. "This will only increase the panic among investors and is going against all the rules of free trade."

Last month a group of Kuwaiti investors demonstrated in front of government offices, demanding that the government intervene to stop the bleeding.

Individual investors also sued the government, naming the prime minister and the head of the stock exchange as defendants and demanding that "trade be halted till measures are taken to check losses at the exchange," according to the official Kuwait News Agency. The plaintiffs blamed the government for mismanaging the crisis.

Judge Najib al-Majed granted the request for a suspension of trading, which is to remain in place until at least Monday, when the court will review its decision.

Kuwait's judiciary is far more independent than those of other Persian Gulf countries.

The Cabinet vowed to appeal the decision. Kuwaiti Finance Minister Mustafa Shimali called it dangerous, the news agency reported.

"We respect the court ruling and as a government we only have to implement it," he said, but added: "The consequences of this ruling would be dire."

U.S. and other markets have rules in place to automatically suspend trading if stocks swing too wildly. But finance experts said they had never heard of an exchange shutting down at the behest of battered investors.

"It's kind of a bizarre thing to do," Yale finance professor Matthew Spiegel said. "Closing the exchange doesn't erase the losses. As soon as you open back up, it's going down the same amount."


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